July 12, 2012

Wells Fargo Agrees to Pay $175M to Settle DOJ Discrimination Charges

Wells Fargo Bank agreed to pay at least $175 million to settle Justice Department charges that it discriminated against more than 34,000 qualified African American and Hispanic mortgage applicants, steering them into subprime loans or charging them higher fees.

It's the second-biggest fair lending settlement ever reached by the government, and will result in compensation to borrowers who were victims of lending discrimination.

"An applicant's creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for," said Deputy Attorney General James Cole at a press conference today. "With today's settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership."

Wells Fargo, which was represented by Bart Williams of Munger, Tolles & Olson, denied the charges, stating in a news release that the bank "is settling this matter solely for the purpose of avoiding contested litigation with the DOJ, and to instead devote its resources to continuing to provide fair credit services and choices to eligible consumers, and important and meaningful assistance to borrowers in distressed U.S. real estate markets."

While the penalty against Well Fargo is hefty, it's only a little more than half of the amount paid by Bank of America Corp. in December 2011, when it shelled out $335 million to resolve fair lending charges against its Countrywide Financial unit.

Since 2008, Wells Fargo has been the largest home mortgage originator in the United States, responsible for one in four new mortgages.

According to the DOJ complaint, which was filed today along with the settlement agreement in U.S. District Court for the District of Columbia, Wells Fargo between 2004 and 2008 discriminated by steering approximately 4,000 African-American and Hispanic wholesale borrowers into subprime loans. Non-Hispanic white borrowers with similar credit profiles were far more likely to receive prime loans. The subprime loans included adverse conditions like higher interest rates, excessive fees and pre-payment penalties.

Also, between 2004 and 2009, the complaint alleges that about 30,000 African American and Hispanic borrowers were charged higher fees than white applicants.

According to DOJ, Wells Fargo allowed its loan officers and mortgage brokers to "vary a loan's interest rate and other fees from the price it set based on the borrower's objective credit-related factors. This subjective and unguided pricing discretion resulted in African-American and Hispanic borrowers paying more."

The case began in 2009, when both the Office of the Comptroller of the Currency and DOJ launched parallel investigations into Wells Fargo loans. The OCC referred the matter to DOJ in 2010.

Comptroller of the Currency Thomas Curry in a statement called the case "an example of interagency cooperation that represents government at its best — multiple agencies working together for the benefit of the citizens we serve."

As part of the settlement, Wells Fargo also agreed to conduct an internal review of its retail mortgage lending and compensate African-American and Hispanic retail borrowers who were wrongly placed into subprime loans.

The settlement also resolves pending litigation filed in 2009 by the State of Illinois on behalf of borrowers there, and resolves an investigative complaint filed in 2010 by the Pennsylvania Human Relations Commission.

While not part of the DOJ settlement, Wells Fargo also announced today that as of July 13, it will "discontinue funding mortgages that are originated, priced and sold by independent mortgage brokers….Wells Fargo cannot set loan prices for independent mortgage brokers nor control the combined effect of the negotiations that thousands of these independent mortgage brokers conduct with their customers."

Comments

Wells Fargo is the latest bank to settle for the practice of pushing their own customers to default so they can get the fees. The kinds of shenanigans the banks were allowed to get away with is outrageous. This practice was done by more banks and it seems without any care of their customers. It's good to see the customers win some retribution.

Wells fargo, did the right thing, because there are other issues that may come out, has to be more than 30,000 people that they cheated, I wonder what their real policy is on racial profiling, or what is the makeup of the board, how many people of color do they have in management, ect;ect

Hmmm, didn't Wells Fargo reluctantly take bailout money attached to their Wachovia acquisition and pay it back almost immediately? Must've p.o.'ed the administration a great deal! I think I remember a couple called the Sandlers ( whom Time magazine named as two of the "top 25 people Americans should blame the mortgage meltdown on ) who gave ACORN something like $11 million to on the stipulation that they would PAY protesters to attack Wells Fargo in California because they were their stiffest competition in the lending market Didn't our President work as an attorney for ACORN? Sounds like the AG is doing a favor in filing false charges on behalf of the Sandlers and BHO. I wonder how much money the Sandlers have given the Obama campaign or how on board they are with the idea of a centralized world bank as long as they get their grift?

Thetruth is we dont know what really happened because WF doesnt want to spend millions defending itself against a corrupt Attorney General and DOJ with unlimited resources to attack any business on any charges it wants. We dont know the whole story or the real truth is. So now there are hundreds of less options for borrowers in a market where it is already difficult or impossible to get a mortgage and more government control over the free marketplace.rates will go up and less sales will occur further damaging an already fragile economy. Amyone can allege anything and sue anyone So the rogue AG Holder can continue to hold American business hostage for millions of dollars.Sickening.